Intesa Sanpaolo Taps Up LTRO for €24 Billion

Intesa Sanpaolo SpA, Italy’s second-largest bank, borrowed €24 billion from the European Central Bank’s three-year lending program and intends to use a chunk of the money to buy Italian government bonds, according to the chairman of the bank’s management board.

Intesa borrowed the €24 billion this week on top of €12 billion it borrowed from the ECB in December.

The new funds, which come with a 1% interest rate, will be used in part “for a profitable trading strategy regarding Italian government bonds,” Chairman Andrea Beltratti said in an interview. He said the bank would mainly purchase Italian government bonds with maturities of three years or less, so that they match with the three-year duration of the ECB loans.

The €24 billion in loans likely makes Intesa one of the biggest borrowers under the ECB’s three-year lending program. The ECB said earlier Wednesday that 800 banks borrowed a total of about €530 billion this week. One of the biggest questions surrounding the program has been the degree to which banks will use the funds to purchase bonds issued by governments in cash-strapped countries like Italy and Spain.

In addition to financing the so-called “carry trade” involving Italian sovereign bonds, Mr. Beltratti said the ECB funds represented an attractive opportunity to insulate Intesa against unforeseen risks. “We believe that there is still value in having more financial resources locked in for three years,” he said. “It’s giving us an insurance policy against having any liquidity shock.”

Mr. Beltratti added that the ECB loans will also allow Intesa to expand lending to individuals and small businesses.